Borders disappear, opportunities appear

This sometimes throws up similar issues and opportunities, but in very different geographies. 

I spent some time with my CEO counterpart from CROSSMARK Canada, Chris Terio last week. We were talking about the similarities in the mining boom driving the strength of the Australian and Canadian economies, the fact that both the Aussie dollar and the Canadian loonie have been at parity to the US greenback for several years, and how this and the internet have affected retailing.
In Canada, 80% of the population lives within 100km of the US border and, even before the rise of online shopping, cross-border shopping has always been a normal and significant part of the two economies. Both ways, depending upon the item. Cuban cigars are still banned in the US, so they flow from north to south. Alcohol is state government-controlled in Ontario, with a smaller range of brands and higher prices than in the US, so they flow south to north. But it’s not just life’s wicked pleasures that cross the border based on brand and price, more mundane items do, too.
The arrival last year of US retailer Target in Canada has shaken up the local market’s pricing. As a mixed mass merchant retailer, Target buys across a very wide range of items and suppliers within the clothing, bedding, food, consumer electronics, health and wellbeing, and home entertainment sectors. And they stumbled upon a confusing issue. Target found that it sold a pair of branded running shoes in their Detroit, Michigan store at the same price they bought that item from the Canadian supplier for their Windsor, Ontario store.
The stores are only 10 miles apart and the shoes are made in China, so freight costs aren’t an issue. Due to NAFTA, the North American Free Trade Agreement, the import taxes paid on both items are pretty similar. Canadian GST is a little higher than Michigan state taxes, but not hugely higher. This meant the only major difference was the importer or manufacturer margin: the brand owner choosing to sell these items at a higher price, and make a higher profit in one country than another. For as long as shoppers in that country will pay.
This very ‘in your face’ fact drove Target to use whatever means available to them to lower prices from suppliers in Canada and the USA to ensure that Canadian shoppers in Target paid a comparable price to Target shoppers in the USA.
But Walmart also operates in Canada and will not be undersold by anybody, and certainly not a new arrival like Target. So they did the same thing, and dropped prices at shelf.
What this has all meant is that the cost of living for Canadians has dropped, and will continue to drop until it gets to about 10% more than the US. Prices will always be slightly higher. Canada has bigger, more costly government at federal and state levels that imposes its will on individual Canadians in a far more intrusive way than its southern neighbour. This drives higher income and consumption tax rates, delivering wider medical and social systems and far safer streets. But there should be no confusion, higher government-funded benefits and higher income tax rates have no correlation with high shelf prices for shoppers.
So why does this matter? Well, the mining boom has driven wealth creation in Canada and Australia. As these higher paying jobs are lost in both countries, Canadians and Australians will return to more normal occupations in services and retail. And Canadians will benefit from a lower cost of living to match those more normal salary and wage levels.

CROSSMARK CEO Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. His international career in sales and marketing has seen him responsible for businesses in over 40 countries.


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